Educational Articles

Where Does Research In Motion Go From Here?

Kenneth A. Nugent
| October 08, 2011

Research In Motion (RIMM) started out working with RAM Mobile Data and Ericsson to create the Ericsson-developed Mobitex wireless data network into a two-way paging and wireless e-mail network. Its early development was financed by Canadian institutional and venture capital investors, with its initial public offering on the Toronto Stock Exchange in January of 1998 under the symbol RIM.

The following year, Research In Motion introduced the BlackBerry, which truly revolutionized the mobile telecommunications industry. To wit, BlackBerry products and services are currently used by millions of customers worldwide to stay connected to both people and content. In fact, users are typically so impressed with the multi-faceted features of the device—phone, Internet, email, text messaging—that they have become known in certain circles as a "Crackberry", given that many subscribers feel like they can not live without them. Moreover, corporate clients became enamored with RIMM’s proprietary email and messaging servers. As a result, Research In Motion’s top-line growth over the last nine years has been astronomical, going from $294 million in fiscal 2003 (year ends on the last Saturday in February) to $19.7 billion at the end of the fiscal year concluded in February, 2011.

However, the competitive landscape has changed quite a bit of late, with the Apple (AAPL) iPhone and Google’s (GOOG) Android operating system recently taking a toll on Research In Motion’s performance. Moreover, through early June, the company had not rolled out a new BlackBerry in almost a year, and customers began to turn away from its seemingly old-school lineup for more consumer-focused offerings. Therefore, it came as no great surprise when management recently warned that shipments were likely to have waned through at least the first half of the current fiscal year.

Due to the recent downturn in demand, Research In Motion management recently commenced an initiative to streamline operations across the organization, which should result in headcount reductions of roughly 2,000. The realignment will focus on eliminating redundancies and reallocating resources so that it can concentrate on the areas that offer the most appealing growth opportunities, as well as step up new product introductions.

Importantly, in early August, the company unveiled plans to introduce five new BlackBerry smartphones based on the Blackberry 7 Operating System, including its first all-touch device, in what is being slated as the biggest launch in its history. The new lineup, according to critics, is designed to buy RIMM time until it introduces a completely new software package for its smartphones sometime next year. However, pundits seem none too impressed, as they expect the new devices to look outdated compared to newer Android and iPhone models due out this fall.

Recent whispers on the Street have highlighted what an attractive takeover candidate Research In Motion would be at this time. Indeed, given the aforementioned precipitous drop in its market cap, an acquirer could pay a 50% premium and still buy RIMM for a lower price-to-earnings multiple than any company in the industry. If this were to come to fruition, the acquirer would get a smartphone manufacturer with a number of patents that has significant corporate market share and a leadership position in secure mobile email. What’s more, the financially strong company is certainly a cash cow, having ended the most recent fiscal year with a debt-free balance sheet and $2.1 billion in cash.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.